Fortress Real Estate Investments Limited (FFB) Earnings Call Transcript & Summary

Welcome to our Fortress half year results for our financial year 2026. This is for the period 1 July 2025 to 31 December 2025. Thanks for joining us here at the auditorium in Sandton, and welcome to all of those shareholders, analysts, viewers, stakeholders who are joining us online. Overall, I think it's been a very good 6 months. I think we've seen certainly a nice uptick and a bit of a tailwind brought about by, I think, the lower bond yields, the lower inflation rates. And I think more pleasingly, from our perspective, some really good NOI growth, low vacancies and some really positive figures coming from our core portfolios. As you can see on the top left of your screen, our distributable earnings per share, ZAR 87.89 for the period, of which we will pay out the full amount as a dividend. And we are offering a scrip alternative in the form of additional Fortress B shares for those shareholders who would like to leave their cash invested in the business. I think, as I mentioned, the SA logistics portfolio, nearly ZAR 18 billion, 6% like-for-like NOI growth with inflation sitting at around about 3.5%. I think that's an excellent result, and it's really brought about by the lower vacancy rate, and we managed to get positive reversions of 7% for this period. So I think that portfolio and the demand is looking really, really strong. Also the retail portfolio, which we've got nearly ZAR 12 billion in SA, 7% like-for-like NOI growth. Vuso will talk to the reasons there and a vacancy rate of under 1%. So those core portfolios, I think, are really performing. We've spent a lot of time and efforts in making sure that we have top quality assets that the tenants are very sticky in those buildings. And I think it's been a great performance. I think we see potentially with the Reserve Bank lowering their inflation forecast, maybe the contractual escalations might become a hot topic. But I think all in all, the tenants appreciate that maybe our inflation rate on the actual assets is not quite as low as the stats of CPI figures. So we do need to cover those costs. And I think the tenants also appreciate that in a market when we're developing, say, at 8.5% and interest rates are probably 8% to 8.5%. It's not quite like the Western developed markets where we can have CPI-linked escalation. So that's something that we need to just negotiate with. But I think at the moment, we're pretty confident that we'll keep signing those escalations of round about 6%. We upgraded the guidance. Ian will talk to a little bit of the reasons behind that, but we're expecting full year growth to be around about 10% above where we were this time last year. NEPI, our large investment there, they had some -- another set of very, very strong results and guiding to 3% growth this year. I guess what are we focused on? This really hasn't changed that much, and I think it almost goes without saying that we need to optimize the portfolio and really look at the quality of our earnings, which I think we've done. You can see that by the low vacancy, the longer weighted average lease expiry and the performance from the retail. I think a lot of that is also -- a lot of our time is going into making sure that we get better technology to assist our asset managers with data that we get from the buildings. A couple of interesting points there. On our electrical meters, we've rolled out a lot of smart meters across the portfolio. We get 88,000 data points every day from our electrical smart meters, which then goes into our Fortech system, and we can start to use that data to really analyze what the tenant electrical consumption is like, and we have a portal that they can log into to see their electrical consumption per property where they have multiple properties, for example, in the retail. And that really does help the tenants to minimize their consumption. There's really nothing in it for us. We're selling the power that's developed by the solar, but we want to make sure that the tenant's cost of occupation is as low as possible because then that will enable us to hopefully capture some of that benefit in higher rents. Capital allocation and growth opportunities, we still have a relatively large development pipeline that's been the focus. Vuso also has a lot of retail assets that he wants to extend. And I think the benefit for us is we have an in-house development team, both on retail, SA logistics and CEE logistics. So we're able to add a lot of value in terms of refurbishments, extensions and new builds, and that value sits within the belly of Fortress. This is our asset base at the end of December. I think it keeps growing in the core sectors that we've identified, SA logistics, CEE logistics and retail. We have about ZAR 2.7 billion of noncore. I think the step change in the last 6 months has been a proactive slowing down on the sales of the noncore. The capital markets are a lot more buoyant. We've got no problem accessing debt. The values are rising. So I think it's our view that the private markets tend to lag the public markets. So we are waiting for better prices on our noncore. I'll touch on some of the yields that we're seeing on the industrial. But it's really been a process of using the asset disposals and that cash to fund the development. So if you look there from 2019 to the current half year 2026, we've done ZAR 11.3 billion of developments that's been undertaken by our team. We estimate that will be about ZAR 12.3 billion, about another ZAR 1 billion to come for the rest of the year. And that's been funded by asset disposals of ZAR 11.5 billion. You'll see those little purple blocks is the NEPI scrip that we did offer, which we aren't offering this time around. Our share price is at a marginal premium to NAV. I think we did that to enhance shareholder returns, close the gap to NAV. And we just don't think it's appropriate that this time also NEPI has quite a high yield. They're trading at around about their net asset value at the moment. So I think largely, we've displayed that we will -- our intention to fund this development pipeline through asset disposals, and I think we've done that really well. So if we wind forward where will this pipeline and if we roll it out, where will we land more or less, ZAR 23 billion of SA logistics, about ZAR 9 billion of logistics in CEE, ZAR 13 billion in retail. That's quite a conservative number if we just take the refurbishments and extensions that Vuson plans in the next couple of years. And then we've got our investment. We own about 14.2% of NEPI Rockcastle. I think this vacancy slide speaks volumes to where we see the recovery in the market. There's been a lot less development over the last couple of years, a lot less spec development in the logistics space, 0 office development. There has been quite a bit of retail development. I think we've seen some smaller shopping centers. But as we know, where you've got an entrenched retail mall, it's very difficult to go and build something new out of town and compete, especially where we've got dominant centers. But from 4.8% December '22 to 2.8% now that is by rental. And you can see there that the makeup of that largely is our CEE logistics vacancy. We had a tenant failure there in Gdansk, but we have signed some tenants, 2 new tenants, and we're looking at 1 tenant who hopefully will sign in the next couple of weeks that will reduce that vacancy actually by about half. So reduce our CEE logistics vacancy from 9% to 4.5% if we sign that lease. But as we sit here today, it's already reduced from the 9% at year-end to about 7.3% currently. I think what the low vacancy allows us to do is to increase the reversion -- sorry, to increase the rentals, which leads to a positive reversion. So if you look there on the right, we had positive reversions of 7% for the 6-month period in our logistics assets. So really, what that is, is on new leases and on tenants just renewing. We take the old rental, we average out what our new rentals are and that was plus 7%. For 6 months, it's sometimes relatively small sample size. So I think we wanted to show here just the general trend from 2021. And I think that's very positive because bear in mind, a lot of these logistics leases have got 6% or 7% contractual escalations with inflation running below there, and we're now able to renew those leases at above the expiring rental, which is quite -- I think it's something that we would never have expected 5 or 6 years ago when we were sort of stuck in the mid-60s in terms of asking rentals for the logistics. As I mentioned, the asset disposals have been a little bit slower. That was deliberate. We took some offers on some industrial assets. And every time we went back and said, no, we would get a higher offer and a higher offer and a higher offer. So I think we realize that there is a lot of demand, especially for the smaller industrial assets and a resurging demand for office assets also from the investors as the -- as a lot of those suburban office assets such as ours have been taken out of the market for residential conversions, the likes of Africrest, we sold the portfolio to. And I think that, combined with pretty much 0 new supply in the offices has started to lead to some lowering of the vacancy and some renewed interest from the investor market. I'll hand over now to our CFO, Ian, who will take you through some of the figures.

Good morning, and thank you very much for your time. As Steve mentioned, our distributable earnings for the 6 months ended 31 December 2025 is very pleasingly up by approximately 16.8% year-on-year, and that translates into a 15.4% increase on a per share basis. And as Steve mentioned, we will be declaring or have declared a dividend in full the ZAR 87.89. Where does that distribution come from? If we look at our simplified distributable income statement, largely from the NOI, we've seen an 8% increase. I know Steve mentioned 6% on a like-for-like basis. Included in that NOI would be some new assets, roughly 5 new assets internally developed, 2 in SA and 3 abroad as well as an acquisition in Poland. Not completely in the 6-month number, but that will come through in the second half, which has assisted us in revising our guidance upward. To that, we add the dividend that we received from NEPI. That's 8% up year-on-year on roughly the same number of shares. Of course, we have distributed some of our NEPI position over the last 3 income periods, but also subscribed for some in the latter part of 2024. We deduct the debt from that. Our net debt position, roughly ZAR 20.9 billion has remained static year-on-year with a slight reduction in our net interest charge. And the way we view that is obviously interest paid, net of interest received and the interest rate protection that we have, and that's down roughly 3%. From that, we deduct the fund overheads or the head office costs and of course, tax as we are not a REIT. So we calculate an appropriate tax charge for the 6-month earnings and deduct that from the distributable earnings. As mentioned, we've revised our guidance from the upper level as we're tracking largely from the operational performance, we're tracking to the upper end of the previous range that we had published, and we revised our guidance now to ZAR 2.15 billion, roughly 10% or approximately 10% up year-on-year, and that will translate into a dividend for the full year of ZAR 1.76, roughly 8.6% up year-on-year. It's important to note that the Board remains committed to distributing 100% of this distributable earnings number based -- and that calculation or that distribution is based on the Fortress methodology of calculating it. And why we're so comfortable to do so is that is, by and large, cash backed. In fact, mostly cash backed as indicated on our previous slide. What's happened to the NAV in the 6-month period, ZAR 25.27 to ZAR 25.76. We've had an increase in our direct property, as mentioned, acquisition in Poland as well as some new developments, and that would just be a transfer from our development pipeline into our new developments. And then we've had an increase in the NEPI price for that 6-month period. We don't revalue the portfolio in full every 6 months. That is done at year-end. We do revisit some of the valuations where there's an apparent uptick. So we have taken some increases in the 6-month period, roughly ZAR 200 million. And we have indicated those blue dots where our price relative to NAV was at 30 June and at current. With regards to our funding, from a South African perspective, it's been relatively quiet for the 6-month period. We've raised a further ZAR 500 million in a new facility and restructured some facilities. We have mentioned before, and I'll get to it shortly in terms of our secured versus unsecured debt mix that we would like to be a participant or a biannual place in the debt capital markets and have done so in the past. We got to sort of Q4 of last year and felt that it would be ultraconservative to go and place again and sit on additional cash without looming sort of refinance or place to put that cash at that point. Obviously, 6 months later, we're looking at our facilities again, and we're quite comfortable to now go and issue. And we've just announced this morning, in fact, that we'll be doing a placement towards the end of March. Price guidance will follow shortly. With regards to funding in Central Eastern Europe, we've raised about EUR 85 million in the 6-month period, 2 of which -- sorry, 2 facilities of which face the South African banks and 1 increase of the facility that we have in country. And over time, what we'd expect to see with that portfolio growing is the shift of debt mix between SA and Europe. Whilst the net debt position remains roughly the same. It's just where those debt facilities sit. And to that point, we've been able to raise a further EUR 32 million post year-end, not yet drawn down, not yet included in, obviously, at the balance sheet at 31 December. I suppose it's also worth noting that if we look at our euro exposure in total and our euro debt in total, we sit with an LTV of about 25%. Our SA available facilities, ZAR 4.6 billion, very healthy and in Europe, EUR 22 million. And average cost of funding calculated on an SA REIT best practice basis of 8.82% in SA and 4.22% abroad. We do publish a see-through LTV of 45%, and that's calculated by way of proportionately consolidating our share in NEPI Rockcastle, that would be their assets as well as our share of their debt. And the spot LTV at the moment would be about 38% or just under. With regards to protecting our exposure to variable interest rates, as mentioned before, we have about ZAR 21 billion or just shy of that in a net debt position. But from that, we economically adjust what we know CapEx requirements to come as well as potential sales to get to sort of an economic exposure so that we don't overhedge the position, which is roughly ZAR 20.4 billion. And against that, we have 85% of the book covered. We still like the cap product over a swap product. And this is what our -- sorry, our in-force protection would look like as of today. We still have some historic swaps that will roll off in due course. But last year, when we looked at our position, we realized that with the net debt position not reducing or increasing as we haven't been an incremental borrower, the book was sufficiently covered, but the tenor would need to be extended. So we entered into a number of forward starting caps. And what that will do to the profile of is this. The -- as these maturities in '26 and '27 of the swaps that we have roll off, they will be shifted into our 2031 bucket. So this slide illustrates the benefit of swaps versus caps. The swap product locks the rate in, which is great for forecasting. And of course, if you get it right, well, then you lock in at a much lower rate for a period of time. We almost like the cap product irrespective of the interest rate cycle because we believe it's the right sort of insurance for the type of asset that we have. In a cycle at the moment that we see perhaps longer or lower for longer interest rates, we should then benefit from those reducing interest rates into the long end of the curve. With regards to our debt maturities, we have facility -- sorry, facilities of around ZAR 26 billion of tenors of between 3 and 5 years. So any 1 year, we would have about ZAR 5 billion to ZAR 6 billion that would be up for refinancing. This year is no different, although most of it has already been done for June '26, and we'll now start to look at the Q3, Q4 buckets as they come up for maturity. But again, relationships with our existing funders, very comfortable. So the senior secured positions would almost automatically be refinanced. And as mentioned, we'll be placing again toward the end of March in the debt capital markets. Coming back to that split. Historically, we've targeted a split of about 80-20 secured to unsecured funding, but we revised that in the last sort of 12 months to 70-30. And the driver of that really is the development pipeline. As we've built the new sort of income-producing boxes, we're far more comfortable to move so-called up the risk scale on the debt to unsecured funding because we have unencumbered assets that sit on our balance sheet that -- should that market give us a wobble or if there is a wobble, we can go to the senior secured funders and provide them with the income-producing assets as security and that manages the refinance risk that the unsecured market comes with. But as mentioned, very comfortable at the moment. We're currently at about 25% and arguably could move up on that front. From an unencumbered asset perspective, again, very comfortable and our interest cover ratio has continued to improve period-on-period, and this is driven primarily from -- by 2 areas. One, the existing portfolio and operational performance as well as those very new developments, as I've mentioned, that's new income that comes through the P&L. And then, of course, the interest rate reductions that we've enjoyed. And through those cap products, we actually see that total cost of funding coming down. Thank you very much. I'm going to hand over to Vuso to take us through the retail sector.

Good morning, everyone, and thanks for joining us today. So our portfolio continues to focus on the commuter and convenience retail market, currently valued at ZAR 11.9 billion. I think we will continue to do our redevelopments and extensions of the existing portfolio. In this period or during this period, we renewed 324 leases, existing tenants, and then we signed 50 new tenants. That all resulted in the positive rent reversion of 1%. I think the market is tough. Obviously, trading conditions are tough. So that's what led to our 1% positive reversion. I think that in the short term, our reversion rate is likely to remain in that low single-digit level. Our average in-force escalation rate is 6.1%. Steve did mention that the Reserve Bank's targeted inflation rate of 3.5% will, in time, bring pressure from tenants, and we'll need to negotiate with tenants around that, obviously, based on what our actual inflation is on our buildings and expenses and all those sort of things. But I looked basically back at the last 3 months renewals that we did and where the inflation -- where the escalation rates are landing, we're still doing escalation rates between 5% and 6%. Our vacancies are low at 0.8%. I mean that's quite a big focus area for our team. So we work a lot on those vacancies. I think our vacancy in the next couple of months will probably stay around the same levels. It will probably decrease in the second half of the calendar year. There are a few projects that we're working on, on existing space that's difficult to let, trying to make it more attractive for tenants. So I expect that to improve. Our like-on-like NOI is 7%. About 1% of that relates to savings -- electricity savings from our solar plant. There are some ones-off R&M. If you exclude those 2, our like-on-like growth on NOI would have been 5.6% for the period. What I want to focus on this slide is just again on where the vacancies actually sit. So if you look at the CBD portfolio, it's quite a -- well, firstly, the townships are vacant at the moment. This was as at 30 December. We did have 400 squares that came out at Evaton in January, but we filled that again. And in fact, the tenant is in [indiscernible] now. So largely, the township centers are full. The CBD, a large portion of that 0.4 sits in our building in Central Park in Bloemfontein. It's a historically difficult space to let. So we're doing -- we're reconfiguring that space to make it more usable. In fact, we found a tenant for that. We've signed that, but that will only come online second half of the year. The suburban centers, the reason for that 1.5% in vacancies largely relates to 1,000 squares in Flamwood Mall in Klerksdorp that came up. So what we're doing there is we found that there's demand for smaller units. So we're chopping that block into 3 premises. We found -- we've signed 1 tenant, and we're talking to 2 others. Again, I think that will come in the second half of the year. And then our rural vacancy, a large portion of it is an office in Lephalale. We've just completed a project where we've broken that up. Again, it's another 1,000 squares. We've broken that up, and we're starting to let that, and we're finding tenants for that. So this is our like-on-like tenant turnover growth for the last 12 months. It's sitting at 4.6%. I think what this graph -- what you can see from this graph is obviously in the last year, there were lots of fluctuations in the trading activities. A lot of that has got to do with the timing of where Easter was this year versus last year and then school holidays around June, just a different timing of school holidays. Also in last year, I think there was a lot of higher turnover in the previous year. So there was a higher base effect from last year, mainly related to the 2 part system around September. So you can see between September and as far as November, that higher base had a negative impact on these numbers. You would have seen from the retailers that Black Friday and the festive season was slower this year. I think that just reflects the pressure that the consumer is under at the moment. Looking post the reporting period, January. So in January, if you compare January 2026 and January 2025, our tenant turnovers on a like-for-like basis are up by 3.9%, which is good in my view because if you look at last year's January, it's coming off a high base. So last year, January, back-to-school was sitting at about 8%. So that 3.9% is growth on the previous year's high number. What I'm picking up from the changes in consumer behavior is that it looks like for the last couple of years, it looks like consumers have been conservative around the Black Friday festive season and supporting back-to-school. So obviously, they're focusing on more essential goods. In fact, back-to-school has become probably even bigger than Easter. I think I mentioned when we reported in June that some of the retailers are telling me that Easter is smaller now than back-to-school. It just shows that consumers are focusing on things that are really necessary at the moment. This slide shows our top 10 retailer category and how they've performed. You can see right at the end there that bottle stores are faster and outpacing everyone. Maybe it's a sign of the mood at the moment. And then if you look at who's lagging behind, furniture is sitting at minus 5%. Interestingly, fast food is sitting around 12%, pharmacies are sitting around 6.5%. And probably more interesting for me is where the grocer are sitting, they're sitting at about 2.2%. So there has been a shift or slowing down in the grocer sector. This is our Weskus Mall in Vredenburg in the Western Cape. You would have probably seen -- you've seen it before. A few more things happening here. You'll recall that when I last spoke, we said we're extending the Checkers. So we extended the Checkers by 600 square meters. They're trading very well here. We're also in the process of adding to our solar plant. Currently, we consume or 17% of the electricity we consume comes from our solar plant. The center is fully let, anchored by Checkers, Game, Food Lover's Market, Pick 'n Pay, Woolworth and Dis-Chem trades very well. In fact, we are in discussions with shop right now to bring in MediRite. So we'll probably extend the center by an additional 800 square meters. So we're still talking about that with them, but I think it's going to come through. These are our top 15 tenants by rental. I think the reason I always want to illustrate this slide is to show that we've got a pretty stable tenant mix that's focused on essential goods and also focused on services. Our collection rate at the moment is sitting around 100%. So I think we've got a good stable portfolio. This is AbaQulusi, formerly known as Vryheid. I said to Ryan earlier on, I wish I could have shown you a photo of what this looked like before and before we did the extension. Effectively, what we did here, thanks to our in-house development team or project management team, we had an 8,000 square meter shopping center, which we largely demolished and built a 16,000 square meter shopping center. I mean during the construction phase, the only tenant that was really trading was Boxer. Center is the main hub of the town. It's where the main taxi rank is and where the main bus station is. We got about 900,000 people visiting, fully let. There is a competitor or another shopping center that was developed maybe a year after we opened. We didn't really feel an impact of that. But -- and I think that's because of where our location is and our focus on that commuter market. Interestingly, we had some problems with the roads surrounding our center, and we entered into an agreement with the municipality where we fixed the roads for them, not much. I think we spent about close to ZAR 4 million, but they then gave us a rebate on rates and taxes. And that's a model that we're trying to do in other centers where we've got some service delivery issues around our buildings. In terms of development activity that we've got at the moment, so we've got Botlokwa, which is about 60 Ks north of Polokwane. It's 8,000 squares currently, and we're almost doubling it. We're adding another 7,900 squares. The current center is anchored by Shoprite and it's got most of the usual suspects. In the new development, we bring in -- Shoprite, we bring in Clicks, Markhams, Pep Home, all the guys that you would have heard of. That will probably -- in fact, we are on track to open later on this year. And then Tzaneen Lifestyle, where we're in partnership with Resilient and [indiscernible], we're adding 20,000 square meters there. That will accommodate an expansion of Shoprite, Checkers actually and into becoming a Hyper, bringing in a new Pick n Pay, new Dis-Chem, new Mr. Price Home, new Mr. Price, new Truworths. I think that will be a good one because the town, the densities at this center are quite high. And Tzaneen traditionally is a good trading node. I thought we would just talk a little bit about some of the redevelopments that we've done historically. I mentioned that we've got an in-house project team where we've done places like Vryheid, Morone in Burgersfort, Palm Springs in Joburg, where we've turned around buildings that were not performing that well. The one we chose to [ oppose ] because probably most of the analysts know it and at least the ones that are in Joburg, it's a familiar asset to you. So more than a year ago, I think we completed the redevelopment of the center. This center had faced a challenge where the demographics were changing and the tenant mix wasn't talking to those changing demographics. But also structurally, it was a difficult building to navigate, particularly around the parking. So we spent about ZAR 90 billion -- ZAR 90 million, reworking it. So we fixed the parking. We fixed the flow, we fixed the facade. We brought in some new tenants, and it's proven to be a good investment for us. So NOI is up 48%. The vehicle counts are also up to about 54,000. I think -- sorry, 52,000. The last time we saw similar numbers like that, I looked the other day, it was around 2016. So we've really brought in new shoppers. Trading densities have increased. And actually, the property value has improved as well. So that's been a good successful development for us. And this is just a video of the center itself. Not a big building, 15,000 squares. You can see that we got some solar there. Although, we'd like to have more, just the configuration of the roof doesn't allow it. So some of the new tenants KAUAI, Woolworths, new anchor tenant, Naked Coffee and Clay Cafe also opened up there. I think feedback from the community and tenants is positive. So at one point, I think we had about 3,000 squares of vacancies on the offices and we filled most of those. We've still got a small bit to work through. But I'm hopeful that, again, between now and probably second half of this year, we'll fill those ones. I will now hand over back to Steve.

Yes. Thanks, Vuso. Hopefully, we'll get some more footfall from some of the analysts visiting 204 Oxford. So this is our direct logistics portfolio. I touched on it. I think what's interesting for me is if you look at that top right block, ZAR 10,925 value per square meter, it is a bit of a mixed bag, but our current spec bucks for our standard is coming in at about between ZAR 12,000 and ZAR 14,000 a square depending on the land and a variety of things, but that's about replacement costs. So I think that really is, as we've mentioned before, leading to the positive reversions and our ability to actually push the rentals. We did have a question in Gauteng about the rentals. They're sitting around about asking price of ZAR 90 a square. That's kind of more or less. I mean, I guess you could take a range of ZAR 85 is the tenants winning, ZAR 95 we're winning on that same kind of buck. So those are about where the rentals are. Very, very low vacancy. Building costs have stabilized, but they never seem to come down. I think that's just the nature of inflation, the nature of the contractors is they're happy to push it up. And then if it actually does come down, it probably remains flat for a couple of years as opposed to seeing a big drop. But I think that's helped our standing portfolio. This is Eastport. So we have finished 3 boxes at Eastport since we reported, I think, last year in August, we've done a box for Crusader, a box for Liquor Runners and that one in the middle, which finished after year-end for has been let to an existing tenant in the park who actually needed smaller space. And I think the advantage of having these parks and availability of slightly different sizes is it was great for Teralco. They had lost the Tiger Brands contract. They needed less space, but they moved into the 13,000 square meters. And we now have their 20,000 square meter building to let, but there's been, to be quite frank, a bit of a queue at the door there on potential tenants. So we're pretty confident we will let that before year-end. So this is where they've just moved into. 3-year triple net lease. I think also the portfolio effect of where we are now, we're happy to sign the shorter leases also allows with the reversions now being positive, I don't think we're as concerned with where those rentals go to on expiry. This is Crusader second building. They now have both of those at the front there in Eastport. And a nice just over 30,000 square meters we did for Liquor Runners. They do a lot of logistics for Diageo and for Heineken. It's been great. They were a tenant when I was an asset manager in an awful building in Isando, which we subsequently sold. They complained the roof always used to leak. Security was an issue. And it's just been fantastic to sort of grow with them as they've hooked more and more of these liquor-related 3PL contracts. CEVA Logistics is in there. They run the logistics out of that warehouse for a very, very large online retailer who is also looking at expanding in this area. It has been interesting from our interaction with some of these online retailers that they are booming. And potentially that with a number of other factors might also -- it's our view that, that does explain a little bit of the marginal softness we see in some of the retailers because there is definitely an evident shift in spend from -- it may be anecdotal, but from what we see. This Eastport North site, we have an option on. I think we do have a lot of serious interest. We can develop 150,000 squares there. We own 65% of that. Again, a fantastic node. That road down on the bottom of your screen is actually going to be -- well, it is the R25 Expressway, which will run parallel to the R25 all the way from Riverfields up north towards Pretoria. So I think it's fantastic that we have this site, which has 2 major -- a highway and a major arterial road as a backup. So our development update. We completed 74,000 squares during the period. We have another 73,000 squares on the go. We only have 2 that we haven't let yet that are still under construction. That's a Hall C in Bydgoszcz. We decided to do the whole piece and we let some to Inter Cars. We are close to signing a tenant there and a speculative 19,000 squares in Longlake, which we're also pretty confident we will sign. The only change from our previous disclosure there on the estimated yields Liquor Runners, we had some cost savings. So that's 8.3%, but we have agreed quite a big step lease there. It was something that we were happy to do just to help them until they were fully operational and utilizing all the space in that facility. So here's our pipeline from 2019, whittled it down from 1 million, we now have 300,000 squares. We did whittle it back up with that option at Eastport North. So currently, that's where we are. Yes, as I mentioned, 24,000 still under construction for Suzuki on an 8-year lease and just that 19,000 to go. This is just a picture of Eastport. We have one site left on the highway. So the tenants often come to us and say, we don't want to pay extra for a highway site. When they see it, they put the branding up, they're always happy to pay a little bit extra for the highway site. So they do have value. Teralco have not expanded their data center there at the back, but they have purchased the land from us. That's just some summary on Eastport and Longlake. So Longlake is a bit of a park. It is divided by road, but we're trying to put some security in there and just give it a bit more of a feeling that it is kind of 2 assets that belong -- 2 sides that belong together. But once we've done with these 3, it will be about 100,000 square meters. Spec 1 interesting story. We did lease that to Liquor Runners, and we've now got overnight logistics there on a short-term lease. But again, we actually quite enjoy the short-term leases. We can charge a bit of a premium. And I think it does provide us with a bit of flexibility on the tenant side, and they really do appreciate it, but they need to pay for that optionality. So this is just a video of Longlake. For those of you that are unfamiliar with it, it was actually the [ old Zinda land ]. It was the old [ ACI land ], [ Zinda land ] then a Chinese affiliated company bought all of it and then actually sold it to our partner, [indiscernible] and then we purchased it from [indiscernible] I think we've got probably the best couple of sites there, but it is a node that's growing. Zenprop have developed quite a few smaller boxes sort of more like around about the 5,000 square meter mark down the road. And I believe Microsoft has bought a piece of land also down the road to do a data center. So it is an up-and-coming node. It's very, very close to the N3, very close to Sandton. And that road just down south of our site is actually going to go all the way and link in ultimately to Midrand near Waterfall. Suzuki took a long time to negotiate. I think being a global corporate, it was back and forth with Japan and took us about 12 months, maybe even longer to sign that lease. So I think they'll be pretty entrenched there for 8 years. And I'm sure many of you follow the [ car stats ] of Suzuki, is one of the -- I think they fill 3 of the top 10 in terms of sales. I did touch on it earlier, the office portfolio, although it's only 1.3% of our assets, it does genuinely feel that it's bottomed. I think the tenants are coming back. Some investors are viewing this asset class with renewed interest. And I think it's largely the constrained supply and the fact that we've actually lost some supply to residential that's making it not look as terrible as it was. Our vacancy is still high. We're still looking to exit this portfolio. The South African industrial, interestingly, we've got ZAR 1.6 billion value of completed buildings. When we look at our financial year ending '26 budget, that yield is 10.5% that we get on that book value, and that's inclusive of a 7.5% vacancy. So it is quite a high-yielding portfolio for us. And that does give us a little bit of, I guess, confidence that our call on these cap rates compressing is correct. And we've actually got some hard evidence on real offers and real negotiations that we've done that, that does prove that. So I think we're going to take a bit more of a patient approach, its giving us a great yield. We've sold a lot of the older assets that were ex growth and slightly higher R&M. And if you look at that building valuation, ZAR 5,000 a square, in essence, these are similar tenants to the ones that would seek a warehouse, but they just can't afford the ZAR 90 a square meter. They're looking more for sort of ZAR 50, ZAR 55 a square meter space, no racking, just cheaper, happy to live with it in a worse area, smaller yards, lower ease height. So I think there's still an underpin that is similar to the logistics demand that we see that's driving this. We really don't have any manufacturing left in our portfolio. So it's really just cheaper logistics space even though we brand it industrial. Our Inofort JV with Inospace is still performing well. Occupancy, not really a key metric that they follow. They like to have some vacancy so that they can offer space to tenants. We have begun to optimize these and I think really cut it up into slightly more micro spaces, which seem to be doing well. Often, these older assets that Inospace run have got a much bigger office component, and they've also had quite a lot of success with actually offering very, very small offices, sort of 100 to 200 square meters for a few people in these nodes, and that's how we've managed to deal with these older industrial assets, high office component that we really didn't have the infrastructure, the team and the support systems to do it. So I think Inospace have done a very good job for us. As I mentioned, NEPI reported their results. It's just a summary of that. we Own 14% of NEPI. I think we're comfortable at that level. We view it as a fantastic investment for us. I think we had some questions when we released results just around the tax. We aren't subject to any withholding tax as we hold more than 10% in NEPI. Even if they do convert to a Dutch REIT as they stated their intention was earlier this week, we still wouldn't face any withholding tax on any distributions there nor any normal tax in our hands. So the status quo will remain whether they are a REIT or not in our hands by virtue of us holding more than 10%. So CEE highlights, we did previously announce an acquisition. And if I say it fast and softly Maciej, our MD in Warsaw won't kill me for butchering the Polish language. But in Wroclaw, we acquired a light industrial asset, a heat pump assembler needed a real estate partner, and we did it together -- it was actually an acquisition made collectively from Volvo. It was their old bus factory. They had moved out. But it's a very, very well-located site, really just opposite the river from the Olympic Stadium, very close to the city center. It's got a new tram line that goes past. It's next to the 3M SuperHub. And I think our view was really a real estate view that we're happy to partner with the tenant. And if that worked out, that's fantastic. And if it doesn't, there's a big redevelopment opportunity. It's about 76,000 squares that sits on over 200,000 square meters of land. So I think we can easily add bulk to that. And even if they are in occupation, we may be able to take some of that excess yard and parking space and add some new slightly smaller, more type of inner city warehouses, which was probably going to be more in demand in this particular location. The yield on acquisition was 8.75% just given the risk and the start-up nature of the business, even though it's very well capitalized, I think they've raised over EUR 500 million in equity capital. We did want a rather large deposit of 18 months. So if we net that off, we paid for it, they gave us the deposit back in cash. We're getting 9.75% cash-on-cash yield pre any gearing in this asset, which was also, I think, the reason for some of the increase in the absolute NOI in our CEE portfolio. That -- because the Wroclaw asset was a 20-year lease, our WALE has increased from 4.8 to 9 years. As I mentioned, we did have a tenant failure in Gdansk. We had viewed that as a bit of a risk. So we did withhold some -- about 12 months of rental from the purchase price. So we have been, I guess, made whole from that acquisition and cutting it up into smaller space. We signed 4,000 square meters just over with Rossmann, 4,000 with Stokrotka, and we're looking at a 3PL for 18,500 squares. There will be some rent-freeze periods. In that, the headline rent is slightly higher than we were getting. But I think in the fullness of time, it's going to be a better asset if we can have some slightly smaller spaces to lease out. One small recent acquisition is we were looking for additional land around our ELI Park asset northwest of Bucharest. We did find some land and alongside a development partner who actually is now -- the Managing Director was the one who we dealt with on the initial asset. He's now moved and we're dealing with him again on this. They've taken 20%, we've taken 80%. Relatively small site, but on the A0 ring road, which goes around Bucharest and is starting to be completed on that Northwest section. I think the interesting thing with the Bucharest logistics market is with this new A0 Ring Road going around the city, it does sort of create new prime nodes, I think, for logistics and probably disrupts the incumbents which were on the A1 heading west round about what they call kilometer 13. I think it does create new opportunities as this road network and new off-ramps are being developed. So that's just our pipeline. I think the team has done a fantastic job at now completing Bydgoszcz. It's still under construction, but it will be finished quite soon. Zabrze, we have signed -- sorry. So that one will be finished probably in the next 18 months. INNPRO, we've agreed to extend by another 15,000, and they have an option for a further 15,000, which will then complete that whole asset. There's been quite a lot of interest in that Bucharest site. And I think pleasingly, our Stargard asset, we've also completed 5,000 square meters there, and we've got -- we did a yard for Vestas. So I think it's actually Stargard is looking up. It's not too far from Szczecin in Northwest Poland. I did touch on the renewable energy and building efficiency. And I think everybody is looking at the solar PV, but building efficiency really has been a big drive on our part. We -- as I said at the opening, we're getting 88,000 data points every day from our electrical meters, 38,000 from the water meters. And on our owned fiber in -- which we've rolled out at 14 malls, we have 15,000 users per day. and 100,000 have signed up to our database. So we are now able to track a lot more of the regular customers who's coming back. I know this is not new tech, but I think we're quite happy that we've done it portfolio-wide and that we own the tech, we own the fiber, and we've also developed the software just to give us feedback into our database on which we can base the billings. So one example, which I was chatting to our engineer about yesterday, Ciplamed in Cape Town, we've been having a billing query that's a direct Eskom site, and we were disputing ZAR 900,000 of electricity charges. But fortunately, with our smart meters, we were able to show Eskom that their meters were actually incorrect and there was an error there. So we were able to get that refund back from Eskom. So it is difficult with the municipalities at the moment. There's a host of errors on rates, on electrical billings. But I think the more technology we can use and the more reliable that is, that gives us a much more solid base to go and argue with council and show them where their billings have gone wrong. The rates is another issue. We fight and fight and fight and then we win and then a couple of months later, the billing system changes back to the old rates and then you've got more of a matcha pudding to fix. But we've got a team that deals with that. And hopefully, the municipalities now will be more open to us indicating where things are incorrect. On the social side, I think Jodie and our CSI team continue to do a wonderful job with a limited budget, and I think they really do kind of make every rand work. I think we've really focused on the communities around our malls with food and trees for Africa and on social upliftment through education. Those are really our focus areas. From a governance perspective, we've had no changes since we last reported in any roles. I think on the upside, I mean, this is some real upside in terms of the increased distribution, we look -- we have forecast we will grow 10% versus our distributable earnings from FY '25. And as Ian mentioned, that really is the primary driver is the uplift in our NOI from our direct assets, and that comes from rental growth, low vacancies as well as cost efficiencies. So I think all in all, that's very good, very healthy growth. Just something that we don't do in the forecast is we don't forecast any interest rate decreases. So the analysts will need to make their own forecast on changes in interest rates. We've just assumed it's flat. And as Ian said, we are overweight caps versus swaps. So we do get a marginal benefit when rates come down. These are just our portfolio stats. I think when you look at this over time, you'll see logistics, retail, see logistics growing, office and industrial becoming less of a portfolio. Thanks. Are there any questions?

I see we do have some tenants here from our 204 Oxford Centre in the audience. One tenant, one happy office tenant.

Tshepo from SBG. Great set of results. I just wanted to find out, can you maybe take us through the mechanics of the new JV in Romania, maybe in terms of capital commitments? And then what's the typical rent-freeze period on the logistics developments post completion of construction? And what led to the increase in share count?

Okay. So maybe I can answer the first 2. I'll let Ian answer the share count question. So Romania, so we've entered into a joint venture with -- it's actually a German developer who started a Romanian office called Garbe, where they own 20%, we own 80%. The capital commitment will be 80% of 61,000 times roughly about EUR 600 a square. We're targeting just over an 8% yield there, and we think that's achievable. So that will be roughly the capital commitment. Rent-freeze, Romania tends to be a little bit less than Poland, but it's about 1 month per year is kind of the market standard.

And in SA?

SA, we would have a beneficial occupation period for a new lease. So we would generally give the tenants usually about 2 months to move in, and that's it. So 2 months on a 10-year lease or a month or 2 on a 5-year lease, there isn't -- we don't have that in SA. We sort of have just, I guess, a more vanilla type of market here. Do you want to chat about the share count?

Yes, sure. Simply, we have a conditional share plan with a 3-year vesting period. So in October, each year, there will be a number of shares that will vest to the staff, which would have been awarded 3 years prior, not dissimilar to 2024. I think our first vesting was post 2020, so it would have been around 2023, and it will be a consistent theme, albeit probably decreasing by a number of shares because the award values now against the current prices will be that much higher.

Maybe we can go to a few on the webcast while we get some more here. Trinity from Anchor has asked a few. Just with regards to our shareholding in NEPI, assuming it remains strategic in our hands, how should we think about the appropriate long-term ownership level for Fortress?

I think it's probably safe to assume that it stays where it is. I would make that assumption.

Another question from Trinity for Ian, just around the capital or other costs involved in securing the attractive forward exchange rates with respect to NEPI dividends?

No, there's no capital commitment on that. I'd expect that as we look longer, probably less attractive SA rates just given where the current euro rand exchange rate is. So those forward points will obviously anchor off current spots and the current spot has come right down since a year ago.

Steve, a question for you on SA Industrial. Vacancies improved, like-for-like remained flat. Maybe you could just elaborate on some of the factors there.

Yes. So I mean, the one, I guess, difficult to see for the analysts is what's happened with R&M. I can't offhand think of the R&M number like-for-like in our industrial portfolio, but we did have more R&M for this period. So compared to the 6 months comparable at a total level, we had ZAR 30 million additional R&M compared to the 6 months ending December '24, which is all in the figures. So it was quite a -- I mean, we did have a lot of items to fix. And I think our approach is where we need to fix the roof, we fix it properly rather than trying to patch it. And I mean we have quite a quite a sort of strict financial -- Chief Financial Officer. So where things are repairs and maintenance, they get expensed through the income statement, through the distribution as repairs and maintenance. I did -- I was an analyst once when I entered the sector, and I saw actually in the published financials, a term called capitalized repairs and maintenance, which seems to be unique to the SA-listed property sector. So that's not something that we do, where we have a repair, we just expense it.

Question from Nazeem, Investec. Just questions around Gdansk asset. The rentals there of the new leases versus the I guess rent. What are kind of the differences there and the proposed rental on the 18,000 square meters?

So the 18,000 I think -- so all in all, the headlines are about the same to slightly higher. We haven't got the final terms on that, still being negotiated.

And just some clarity on rent freeze on new lets there.

Yes. As I said, a standard is about 1 month per year. But when we look at the assets that we've developed, for example, in Bydgoszcz, like Inter Cars, they did need some specific additions and alterations for their products. We did MEDiVET also in the same building on the other side of Inter Cars, which is a pet and actually human pharmaceutical distribution company. They need a temperature controlled and a freezer. So often it gets used up those incentives where you're doing a development that, in essence, you kind of do a deal with the tenant and there's no incentives. There's no rent freeze. They pay rent from day 1. So it tends to be on things that you develop for the tenants, slightly less than that market standard.

Great question, again from Nazeem for Ian. If you could just give some clarity on the LTV in our Europe business, he calculates an increase. Just what is the rationale for the year-on-year increase?

Well, the current LTV there is about 54%. There would obviously be an increase with the blend of debt. When you look at the portfolio, there's circa ZAR 21 billion worth of debt. It's what portion gets allocated to the offshore business. As those developments are completed and able to be banked, we would then go and introduce third-party funding at the asset level, which is the right sort of funding for those assets. So as I've mentioned earlier, we've just done a -- sorry, EUR 32 million deal with [indiscernible]. That will be on new completed assets that will give us security. And that would then come back not necessarily increasing the overall euro exposure to the group. So it's just where the debt actually sits on an SA side versus European side. But against the assets directly, 55% at a portfolio level, if you consider NEPI as a euro-based asset, we do have some debt against that, which we've mentioned previously in our last reporting period in the collar. If you include that debt as well, euro assets, euro exposure, we're at about 25%.

Thanks, Ian. Some questions from [ Mahir ]. What is -- Ian -- what's your full year tax expense assumption? I'm assuming that's in our guidance that we've given.

Yes. Sorry, I actually should have mentioned that when I spoke to it. We assumed ZAR 100 million at the beginning of the year. And in our ZAR 2.15 billion, we've remained -- we've kept it at ZAR 100 million. So it's the same number. The increase in guidance is really as a result of the operational sort of performance for the half year where we've been tracking ahead of the higher end of what we had previously guided. But the tax number remains -- provided at ZAR 100 million.

Another question from [ Mahir ] for Ian. Have we made any assumptions around the scrip take-up in the guidance we've given?

No. So what we assume in the treasury and funding side in our forecast is we assume a full cash out, which would then burden the distribution with -- sorry, an interest charge for that circa 3 months period, yes.

Question for Steve also from Mahir. What is the catalyst to consider when distribution NEPI or selling NEPI to fund the developments and maintain a comfortable balance sheet?

I mean, I guess the selling is relative subject to certain minimums and strategic outcomes, but that would be -- if we could do better with that cash elsewhere, we would sell an asset and redeploy that into something that we view as a better return. In terms of the distribution, well, it's a number of factors, as we mentioned before, it is our discount to NAV, premium to cash and where NEPI is actually trading relative to its NAV and its forward yield.

Slight relevant question from Nazeem also on NEPI. Given the potential slowdown of direct sales, would you be more active in selling NEPI or active in selling NEPI to fund the pipeline? And the second part of that question is why not adopt a payout ratio as a source of capital?

So I think on our distribution methodology, we don't need a payout ratio. I think we're very comfortable with 100%. We've whittled down the distribution methodology to be, I think, slightly more commercial and slightly more appropriate for Fortress. So we're comfortable that, that's cash and we can pay it out. And I think we're also comfortable that we can fund the development pipeline with increasing valuations, so lowering LTV. We are conservative on the borrowings, but we could borrow to fund that pipeline. And then I think it's probably still better for us to wait until those prices of the noncore assets come to what we view as a fair value in the current circumstances, and we will dispose of those roughly ZAR 2.7 billion of noncore assets to eventually fund the pipeline. For the time being, though, the balance sheet, given this pipeline is much smaller than it was, is able to handle that bridging. So I don't think there's any need to sell assets to pay for that for now. Certainly, high-quality liquid assets that have a good euro yield.

Question from [ Paolo ] at [ Clarence ]. Does the Eastport option have an expiry date?

It does. It's got about 1 year to run. But it is the same partner we have at Eastport and we work pretty well together. So I don't think it's definitive.

A question from at [indiscernible]. For Ian, just considering our hedges, could you give an indication of the benefit to the group cost of debt for every 100 bps cut you saw in interest rates?

For every 100 bps cut, we'll probably see about 65% of that coming through. You see it increases as the rates come off because sort of as we float down those cap strikes, you get a bigger portion of the benefit flowing through to the bottom line. And as mentioned, with those forward starting caps, as the existing and historic swaps roll off, then we will obviously start to get a greater proportion of it.

A question from Francois -- Ian, for you on the tax. Where do you expect the tax rate on SA income to settle currently below 10% on our distributable income?

Sorry, on SA income specifically, look, on the overall distribution, we're forecasting at around 5%. On the SA income alone, it would probably be -- it's probably about 8 there or thereabouts.

Steve, it's a question you have answered, but maybe I want to reiterate also from Francois. Would there be any impact on tax on distributions from NEPI if and when NEPI becomes a REIT in the Netherlands?

No, not for us. No impact.

Last question. Ian, from Nazeem. Just on that 25% euro calculation that you mentioned, what does this mean for ZAR LTV on the same basis?

Sure. What does it mean for ZAR LTV on the same basis? Well, the group LTV is 38%. You'd have to then -- I suppose it would be slightly higher, I presume about 55%, 54% thereabouts.

There are no further questions from the webcast. I don't know if you want to check the room.

If there's nothing else in the room, we'll -- please join us for coffee and some snacks and you can ask us questions in the break area. Thanks very much.